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What is Fund Switch in ULIP? And ULIP Fund Switching Techniques

ULIP policy allows you to switch the investment fund during the entire tenure of the policy to help you maximize your gains through unit-linked insurance plan.

  • 5,902 Views | Updated on: Dec 28, 2023

ULIP or Unit Link Insurance Plan is the type of plan that offers dual benefits of insurance as well as investment to the policyholder. It is an ideal strategy for all those who prefer meeting their life goals and mitigating any investment risk. With the help of the ULIP fund-switching technique, you can easily manage your investment returns for higher gains. In addition, with increased market volatility, you can easily move your investment from one fund to another that suits your needs.

If you wondering how fund switches in ULIP occur or what the benefits are, then you are on the right page. This article provides in-depth detail regarding fund switching in ULIPs.

How does ULIP Fund Switching Technique Work?

You can find numerous fund options available on ULIP ranging from equity, debts etc., to invest in depending upon various factors like risk appetite, life goals, age and many more; you can choose the best funding option for yourself. In the future, if you are unsatisfied with the returns or want to shift to some other funds because of market uncertainty, you can easily switch under these circumstances.

You have the option to either partially or completely transfer the investment fund. Initially, the policyholder gets a limited number of free fund switches in ULIP, but with the exhaustion, you will have to pay a fund switch charge to transfer the units.

Benefits of ULIP Fund Switch

ULIP fund switching technique is one of the ways to gain profits in the long run, as it allows you to switch between funds. Below mentioned are some of the benefits associated with switching funds in ULIPs:

Risk Appetite-Based Investment

When it comes to investing money in some funds, most investors have a certain risk appetite. However, your preference for risk and return might change over a time interval. This is where the ULIP fund switch helps you! If your risk appetite is expected to change, you can easily apply for the ULIP fund-switching option.

Investing According to Life Goals

Our life goals and financial responsibilities keep on changing with different circumstances. The fund switching will help you to manage the investments based on your long-term goals.

No tax applicable

Apart from the charges that your insurer applies to provide you with the fund-switching facility, there is no tax applicable to it. However, it will be applicable to the maturity benefits if the annual premium is not more than INR 2.5 lakhs.

To get the best from ULIP fund switching, it is advisable to track the performance of your investment.

Types of ULIP Fund Switching Techniques

Generally, there are two fund-switching techniques that are mentioned below:

Life Stage-Based ULIP Fund Switching Technique

This technique works on the principle that the risk appetite of an investor purely depends upon which life stage they are in. Therefore, many youngsters tend to have a higher risk appetite as they can afford to take risks. However, with time or as you grow older, it is highly advisable to switch from equity-oriented funds to debt funds which are low-risk in nature. These fund-switching techniques suit your life stage and earn lucrative returns.

Fund Switching to Maximise Profit

Here, the switching of the funds depends on the market performance. The policyholder must be very careful while using this technique, as market fluctuations are quite unpredictable. To maximise the gains from the policy, you must have a good understanding of the fund pattern and the share market./p>

When is the Best Time to Switch?

The market usually goes through ups and downs, which creates uncertainty in the minds of investors. But, now, with the ULIP fund switching technique, an investor can easily cut their losses if they are not satisfied with a fund’s performance or want to switch to safer funds if they foresee a drop in the market. You can make switches according to your life stage or personal financial goals. Once you start picturing your investment goals, you can switch to low-risk debt funds and secure your capital.

What are the ULIP charges for switching funds?

You invest in numerous kinds of equities, debt, and balanced fund options in the ULIP’s investment component. There are four to five funds invested in each ULIP. Your risk tolerance and financial objectives will determine the optimal ULIP fund investment for you.

You must monitor your ULIP fund performance over time through the Net Asset Value (NAV) stated by the insurer periodically in order to make sure the ULIP policy fund move works in your favour. Additionally, the insurer will provide you with full information about the ULIP charges, fees, and any other costs associated with the fund move at the time of investing.

As a ULIP is a long-term investment strategy, only a small number of fund switches are typically advised annually. A minimum fee of ₹100 is levied for each extra Switch.

Some Ground Rules To Switch Funds Effectively and Maximise ULIP Returns

1 . It is advisable for you to initiate your ULIP plan by investing in debt funds since they are less risky and assure steady returns on investments.

2. Keep your debt funds intact for as long as possible.

3. Keep track of your funds and investments.

4. Switch from debt funds to equity-oriented funds after the stock market has been steady for some period.

5. Remain patient in case of unpredictable market fluctuations

6. Avoid switching funds during every high and low of the market.

7. To gain high returns, you must stay invested for the long term

Conclusion

Before investing in the policy, it is extremely important to have an in-depth understanding of the features of Unit-Linked Insurance Plans.

You can always choose the ULIP fund-switching technique in case of uncertainty, but make sure that for better and long-term gains, you do not practise it continually every time the market fluctuates.

FAQs

1

Is switching in ULIP taxable?

With ULIPs, one can invest their premium in various debt and equity funds while also having the option to switch between different funds and do so tax-free. An insurance policy known as a ULIP invests the premium paid in securities such as debt, stock, or money market instruments.

2

What is an online ULIP fund switch?

A feature of your unit-linked insurance policy called fund switch allows you to move the funds that are currently connected to your policy to another fund of your choice. You might be charged in accordance with the terms and conditions of your policy after a specified number of switches.

3

What is the difference between fund switch and premium redirection?

A premium redirection, in contrast, to fund switching, does not alter the current structure of the sub-funds in your investment portfolio. It merely alters which sub-funds your future premium payments will be used to buy.

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

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